Can a Pell Grant Be Used as an Educational Expense When Filing Taxes?
As a student or parent of a student, the federal government offers you a variety of tax incentives to lessen the financial impact of paying for educational expenses. Choose from taking a tax deduction or one of the tax credits for any year in which you paid tuition and fees for yourself, your spouse or a dependent. Because Pell Grants pay for tuition, they reduce the amount you can claim on your tax return.
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Definition of Educational Expense
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For the purpose of your tax return, the Internal Revenue Service defines an educational expense as money you pay for tuition and required fees for enrollment. The money must have been paid to a school eligible to participate in the U.S. Department of Education's financial aid programs. When you get a Pell Grant, that means the school is eligible. Fees for room, board, books and school supplies do not count as educational expenses on your taxes, even if you pay these fees to the school. They only count if the school does not allow you to be enrolled unless you pay them.
Pell Grant Effects
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If the Department of Education awarded you a Pell Grant, it sent this money directly to your school. Your school applied the money to your tuition account and reduced the amount of the bill you had to pay with your own funds. Therefore, you cannot count the tuition paid with the Pell Grant as an educational expense. You can only count the tuition that you paid on your own after the Pell Grant was applied. Your school should send you Form 1098-T, which lists how much of your tuition was paid with a Pell Grant and how much you paid, which you might be able to claim on your taxes.
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Claiming Educational Expenses
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If you paid any tuition and fees with your own money or with the proceeds of a loan, you will probably be able to claim a tax deduction or tax credit. For the deduction, you can claim the first $4,000 of tuition and fees you paid. Fill out Form 8917 and include the amount of the deduction on the correct line on Form 1040 or Form 1040A. You do not have to itemize deductions on Schedule A to take the tuition and fees deduction. You can choose from two tax credits, but most students who receive the Pell Grant will qualify for the American Opportunity Credit of the first $2,000 of tuition and fees paid, plus 25 percent of the next $2,000. Claim the credit by filling out Form 8863. If you do not qualify to take that credit, you might be able to claim the Lifetime Learning Credit, which is on the same form.
Tax on Pell Grant
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If you did not pay any educational expenses because your Pell Grant covered them all, you cannot claim the tax deduction or a tax credit. Plus, if your school gave you the remainder of the Pell Grant that was left after tuition and you used it for room, board or other expenses, you might have to include that portion of the grant as taxable income. If you are not required to file a tax return and do not choose to file one, you do not need to report the Pell Grant. Otherwise, you must include it as income on Line 1 of Form 1040EZ or Line 7 of Form 1040 or 1040A.
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